Tax Fraud Blotter: We have a winner

Mule the merrier; cashing out; going for the gold; and other highlights of recent tax cases.

Jacksonville, Florida: Tax preparer Iona Coates has been sentenced to two years in prison for a scheme to file false returns and to two years in prison for an unrelated online romance scam, the sentences to run concurrently.

She owned and operated Bits & Bytes Accounting Services, which provided tax prep and bookkeeping services. Between 2015 and 2020, Coates claimed $228,788 in refunds on her individual federal income tax returns by falsely reporting that taxes had been withheld from her income and had been paid to the IRS. She further created nearly 20 sham entities for filing false returns that claimed fuel tax credits. Between 2017 and 2019, Coates prepared and filed 35 such returns.

In 2020, Coates also met two individuals online through a dating website. She subsequently provided them with her bank account information and began receiving money into her account. In December 2020, Secret Service agents met with Coates and explained that she was acting as a “money mule” in an online romance scheme. As the agents described, the individuals, acting as fake suitors on dating websites, convinced victims to send money to Coates’s bank account.

The Secret Service advised Coates to cease participation in the scheme, as the individuals were using her bank account to facilitate their theft. Coates, however, soon began acting as a money mule for another online romance scammer and from December 2020 to September 2021 received $229,376.26 into her accounts from victims of the scheme, which she sent to the scammer.

Coates, who previously pleaded guilty, was also ordered to serve three years of supervised release. She was ordered to pay some $186,288 in restitution to the U.S. for the tax charges and $229,376.26 to the victims of the romance scheme.

Pompton Lakes, New Jersey: Bookkeeper Richard Winter has admitted his role in embezzling from clients.

From January 2016 through December 2019, Winter schemed to steal hundreds of thousands of dollars by authorizing bank wire transfers from the victim companies, diverting vendor payments to his own bank accounts through an online payment portal and issuing checks payable to cash from the victim companies and depositing those checks into his bank accounts.

Winter failed to file returns reporting the income he received from his fraud for tax years 2016 through 2019.

The wire fraud charge carries a maximum of 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense, whichever is greater. The tax evasion charge carries a maximum of five years in prison and a $100,000 fine, or twice the gross gain or loss from the offense. Sentencing is July 9.

Fairfield, New Jersey: Tax preparer Omar Khater, 33, has admitted to conspiring to steal more than $4.4 million by defrauding the IRS.

Omar, and a conspirator were relatives who worked together and with others to steal victims’ identities that they used to file false returns and fraudulently receive federal refunds. They electronically submitted tax documents to the IRS claiming that the individual taxpayers listed on those documents had earned certain income or won thousands — in some cases millions — of dollars in gambling and lottery winnings. The false filings also claimed tax withholdings on the purported income or winnings that entitled the tax filer to refund payments.

This scheme caused the U.S. Treasury to issue refunds of $4.49 million.

The count of conspiracy to commit wire fraud is punishable by up to 20 years in prison; the count of conspiracy to defraud the IRS is punishable by up to five years. Both counts are also punishable by a fine of $250,000, or twice the gross loss or gain caused by the offense, whichever is greater. Sentencing is June 12.

Norwich, Connecticut: Tax preparer David Etienne, 49, has been sentenced to two years in prison, to be followed by a year of supervised release, for tax fraud.

Etienne, who pleaded guilty in September, operated as a preparer through several businesses, including Los Maestros Inc., Los Maestros Group, Tax Experts USA and Tax Experts USA Inc.

For the 2012 through 2021 tax years, he prepared numerous federal returns for clients. The returns included false expenses and losses in connection with sole proprietorship businesses when he knew the taxpayers had not operated such businesses, false unreimbursed employee expenses and false medical, dental or education-related expenses.

Etienne’s conduct involved tax losses, affecting both the IRS and the Connecticut Department of Revenue Services, of some $600,000.

Suffern, New York: Business owner Joseph Schwartz has admitted his role in a $38 million employment tax fraud involving nursing homes he owned nationwide.

From Oct. 31, 2017, through May 30, 2018, Schwartz was the owner of Skyline Management Group and related entities with headquarters in New Jersey. Schwartz admitted that he was required to collect, truthfully account for and pay over to the IRS on behalf of employees of Skyline trust fund taxes but failed to do so. The taxes totaled $38.9 million.

Schwartz admitted he was also an administrator of the Skyline 401(k) and had an obligation to file a 5500 financial report for calendar 2018 but knowingly and willfully failed to file the report.

The employment tax fraud count is punishable by up to five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense, whichever is greater. Failure to file a Form 5500 related to the retirement plan count carries a maximum of 10 years in prison and a $250,000 fine, or twice the gross gain or loss from the offense, whichever is greater. Sentencing is May 22.

Sacramento, California: Richard Jason Mountford has pleaded guilty to conspiring to file false claims against the U.S.

From 2016 to 2020, he conspired with another person to submit false individual income tax returns seeking undeserved refunds. Mountford and his co-conspirator filed income tax returns in their own names, as well as in the names of two other unwitting individuals, that falsely reported they were employed by a company, received wages from that company and had federal taxes withheld from those wages, fraudulently claiming a refund was due. Most of the returns filed as part of the scheme also falsely reported alimony payments to inflate refunds.

The IRS issued $873,723 in unwarranted refunds to the conspirators. Mountford deposited $757,075 of these fraud proceeds into his bank accounts and subsequently purchased nearly $360,000 worth of new cars. He also distributed to his co-conspirator about $170,000 in cash and gold bars.

Sentencing is April 11, when Mountford will face up to 10 years in prison.

Las Vegas: Restaurant owner Raul Gil, 64, has been sentenced to 37 months in prison for skimming $5 million dollars in cash sales and filing false federal income tax returns, with a tax loss of $1.6 million over five years.

Gil owned and operated three local restaurants and from 2014 through 2018 instructed his manager/internal bookkeeper to create false sales numbers that underreported cash sales at the restaurants by some $5.1 million. Gil provided the false sales records to an outside tax preparer for his federal income tax returns.

During an audit in July 2018, Gil told his accountant to provide to the IRS false P&Ls that matched the figures reported on the returns. He also told his bookkeeper to provide to the IRS false daily cash and sales reports purportedly printed from the restaurants’ POS systems. During interviews with the IRS, Gil lied that the reports and records were accurate.

In total, Gil caused a tax loss to the IRS of some $1.6 million.

He was also ordered to serve three years of supervised release and to pay $2,228,943.65 in restitution.